Those people off in the distance died too.
In games like Civ, a city is never completely destroyed until after the enemy takes control. Otherwise it is just a ruined city pop 0. One of the annoying things about creating a city in Civ is there is no way to move it if you picked a bad spot, or want fewer cities. So a side cannot destroy its own city.
Probably applies here. Erf almost always seems to follow close to Total War style gameplay, and you can't trash you own cities in that game either.